The Fifth P

In the new demand economy, the margin for error for all businesses grows smaller and smaller.

In the flagrantly expansionary economy of the past several years, sloppiness in planning and execution were hidden as business sales and profits went up constantly. These days, you are not only competing with ever-growing sources of supply from competitors all over the world, but all of that supply is competing for flattening – even contracting – demand. In this new competitive reality, any mistake can have significant consequences.

The solution must go beyond tightening the screws still further on the supply chain. Now, the precision must occur on the demand side of the equation.

One reason for this is a shift in expectations. Today’s customers and consumers expect more precision from business because, thanks to the tech revolution, the world around us has become much more precise. GPS devices will show you within inches how to get from point A to point B. Atomic clocks measure to the billionths of seconds. Twitter can tell you exactly what your friends are up to at any given moment. YouTube, TiVo, and iTunes allow you to access the history of recorded entertainment to find exactly the experience you want at that moment. And cellular telephony lets people contact you anywhere on the globe.

In the face of this unprecedented increase in precision, is it any wonder that customers and consumers are increasingly impatient with inaccuracies, delays, and imprecision? Precision has become the leitmotif of the lives of your consumers – and if you fail to match that precision, those failings will seem even more amplified.

What consumers also instinctively understand is that precision has long been a precursor of progress. In high technology, ever-smaller chips also have ever more functionality. In medicine, laparoscopic and laser surgery enables doctors to work in small, almost microscopic, spaces instead of using more invasive procedures. Heart stents are implanted with precision to prevent heart attacks and strokes. The Kindle delivers thousands of books to your home on a small device within seconds, and soon tiny chips called RFID (for radio frequency identification) will track individual packages as they travel across America or around the world. Precision is almost always the path into the future.

We have seen similar shifts in expectations in the past. Twenty years ago, we experienced a shift to immediacy, to a 24/7 world, thanks to the Internet and companies such as Federal Express and Amazon. More recently, mobility has become an everyday expectation, enabled again by the Internet, by telepresence and technologies such as Skype and Second Life, and driven by a natural desire among people to stay connected with each other wherever they are.

The biggest corporate success story of the century to date, Google, is perhaps the perfect exemplar of the growing need for – and the power of – precision. As consumers, most of us would be lost trying to find what we need on the Internet without Google or another search engine. But acting as a tool to help you find precisely what you are looking for on the Web only explains in part what has made Google such an amazing game changer.

The real power of Google is its ability to help advertisers increase the efficiency and effectiveness of their advertising spending through greater precision. The company helps advertisers reach exactly those consumers who are most likely to be interested in their message. Indeed, almost every significant purchase (as well as many smaller purchases) consumers make today begins with online research. Consumers have learned to compare hotels, cars, TVs, shoes, and a thousand other product categories via the Web. What’s more, the consumers conducting these searches are much more likely than the average TV viewer, newspaper reader, or radio listener to actually make a purchase in the category being researched.

The genius of Google’s business strategy is that it placed itself right in the middle of this research/decision-making process—an idea so radical that it caught potential competitors, such as the big newspaper and magazine families, so completely by surprise that they not only cheered the rise of Google, but often even turned over their Web page to the Google search engine. By the time the media giants realized their mistake, Google had placed itself at the crossroads of the online retail and advertising world.

In practice, Google can show its advertiser clients precisely how consumers who saw their advertisements online actually behave. Google can also show how many consumers actually click on an ad or visit an advertiser’s site for additional information. The advertisers in turn can see the increase in traffic to their site, as well as where this traffic came from, time spent on the site, pages viewed, and, of course, sales.

Searching for Profits

Like Google, adding greater precision to your business model has the potential to turn it into a kind of “profit search engine” that can be used to pinpoint the most profitable demand in a market, to help you understand the basis for decision making of those customers, and help align your supply precisely with the highest-profit demand.

Injecting greater precision into your business model drives both greater efficiency and greater effectiveness. And Google isn’t the only company that has come to appreciate that fact.

This article was excerpted from “How Companies Win” by Rick Kash and David Calhoun (published by HarperCollins Publishers).

David Calhoun is CEO of The Nielsen Company, an information and measurement company.